Technical Analysis November 14, 2011

Last week, corn firstly went up, peaked at 666 on Nov.9, then it turned down since then and settled at 638.4, with a -14cents change. Today corn kept its downward trend and settled at 633.4. From the view of RSI, which is 41.85 now, the market is relatively neutralize. However, the fast moving average is below slow moving average, which means the market is bearish. In addition, the fast MACD just crossed the slow MACD, which is a strong signal of the bearish market. Since the price decreases with a decreasing open interest, the market is strengthening. Also, since both the volume and open interest are decreasing, the market is now in congestion phase.

Soybean today has a strong increase when market opened. Today’s highest price is 1181 and lowest is 1168.6, and it settled at 1172 when market closed with +6.0 change. Fast moving average is below slow moving average, which indicates the trend is DOWN. And the MACD is also in bearish territory because the fast EMA is below the slow one. Price increases with decreased open interest, which means the market is weakening, and falling volume and falling open interest depict a congestion phase. RSI is in neutral territory, According to technical analysis of TradingCharts.com, there’s potential market rise coming by Stochastic indicator.

Last week, the price of wheat only increased on Monday and Tuesday, which reached the highest price on Tuesday at 657. After that it turns out to decrease day by day in the rest of last week. The price trend was very similar to corn. The Simple Moving Average was a little bit confusing since all of the fast moving average and slow moving average converged from the middle of Oct. The fast moving average crossed the slow moving average from the above on Nov 10, and the fast moving average kept decreasing until now, which indicates that the market is in bearish mode. MACD indicates clearer price trend since the fast moving average are crossing the slow moving average from above in these few days, which indicates that the market is bearish as well. The RSI is 42.07, which the market is neither overbought nor oversold. Since the price decreases and open interest decreases, the market is strengthening. Since both the volume and open interest decrease, the market is in a congestion phase.

Open Interest is the total number of contracts that have not been settled from the previous day. Large number of open contracts indicated increased activity (large amounts of buyers and sellers) and increased liquidity. Its use in the market as a technical indicator works as follows :
Price increases as open interest increases, market is strong – money is flowing into the market
Price increases and open interest decreases, market is weakening
Price decreases and open interest increases, market is weak – the market is liquidating.
Price decreases and open interest decreases, market is strengthening

Open Volume

Traders will receive the most benefit when there is high liquidity in the market. Volume moves up and down in the month, it increases in volume as contracts move from 1st to second month out traders then move closer to the delivery month, so volume increases over time, but consequently volume declines as the delivery date gets close.
A rising volume and a rising open interest are confirmation of a trend.
A rising volume and a falling open interest suggest position liquidation.
A falling volume and a rising open interest point to a period of slow accumulation.
A falling volume and a falling open interest depict a congestion phase.

Production Report

Corn prices are predicted to be at record high levels due to tighter-than-normal stock. Due to weakening of the US dollar, we can expect that demand for US exports will rise as well, but this effect will be offset by the larger worldwide supply of corn and feed competition. Overall, November production forecast is down from October and of last year, thus USDA’s lowering of this year’s corn yield and production will lead to a sustained, high average price of corn of $6/bushel for 2012/13 futures.
We could expect that the higher prices of corn will lead to more people substituting wheat for corn, hence pushing up the price of wheat as well.

Soybeans

Mid week rain showers left fields too muddy to support equipment in some areas of the state which limited harvest progress once again, according to the Indiana Field Office of USDA’s National Agricultural Statistics Service. Ninety-six percent of the soybean acreage has been harvested compared with 100 percent last year and 96 percent for the 5-year average. By area, approximately 96 percent of the soybean acreage has been harvested in the north, 98 percent in the central region and 94 percent in the south. Moisture content of harvested soybeans continued to average about 12 percent.

Wheat

Australia is having troubles with weather condition due to rain, since harvest is in progress. Thus, harvest delays are expected and closer look is needed to grain quality. Rain can cause poor quality of wheat, so, it means the price for Australian wheat will go down. Meanwhile, the US has good weather condition.
In the Black Sea Region harvest was successful almost for all countries in this region. There is only one problem that Russia, Ukraine and Kazakhstan are facing. It is transportation problem, since the stock of wheat is tremendous and countries are trying to find alternative way of exporting, especially Kazakhstan (no sea). However, as expert (from UN) said that wheat in the world market is enough, the changes in price will not be dramatic.

Weather Report (Nov 14th)

This week, while colder-than-normal weather arrives across the Northern Plains and West, warmer-than-normal weather will prevail in the South and East. Throughout the area of winter wheat production, the growth of some late season’s wheat will benefit from the mild weather. In the Corn Belt, there is a little bit rain from Iowa to Ohio. Significant amounts of the corn and most of the soybeans remain in the field in the eastern Corn Belt. Meanwhile, in the eastern Corn Belt, a big storm might be happen, which means that it will be tougher to get fieldwork done in this region during the next two weeks.

In the Northeast of U.S, showers lead to a cold front and there are a few rumbles of thunder accompanying with raining. Later on, there will be rain moving in from the Ohio Valley over southern Pennsylvania, south Jersey and the southern Mid-Atlantic. Meanwhile, heaviest rain will target northern Arkansas and northwest Tennessee.

Moreover, rain will continue in the Midwest and then the winds will occur in the Plains as colder air arrives. At the end of this week, temperatures will begin to rebound across the South and East, whilst some very cold air will arrive across the northern Plains and the West.

Demand (policy and recent news)

In this summer, the dispute is about if government should cancel the monopoly of Canadian Wheat Board. Recently, the House of Commons have started the second review for the legislation. It is estimated that the legislation of free trade by farmers will be approved by Christmas. The effects on the market is still uncertainty.1,2

In global market, we are focusing the increasing competition from Ukraine. As farmers invest more port facilities and use fertilizer to improve production, Ukraine expected 10 to 12 million wheat are available to export this year. In October, Ukrainian government removed the exporting tariff on corn and wheat. Ukrainian state office recently announced that they export 7,000 tons of wheat to Iran in September. The total exporting wheat reached 1.58 million tons in September.3

According to US wheat associates document, US policies are aimed to eliminate the monopoly of STES, such as CWB. In addition, they also try to negotiate about cancelling the tariffs with different countries. 4

NEWS

Wheat:
The wheat market quiet buoyant .Australia exports 150,000 tonne to Saudi Arabia. On the other hand, the market exist some instable factors. For example, the Ukraine export feed wheat to Malaysia at a low price.5 we might be careful when we enter the market this week.

Corn:
First, according to USDA survey, the corn stays in short supply and strong demand, which might leads to the further rise of corn price.6 Second,Argentina has been unable to meet its 5% bioethanol mandate but Bunge Ltd. will begin building Argentina's largest ethanol mill this week and production of ethanol is planned to begin in 18 months. Currently the country is unable to meet demand, so we predict expanded production capabilities will lead to more corn from Argentina being consumed domestically which will lower global supply creating bullish pressure on US corn prices (intertemporal LOP). We suggest keeping an eye on whether corn or sugar acreage is planned to increase to meet this demand.7

Soybean:
The export data shows the demand of soybeans is increasing to 53.5m bushels. Furthermore, the news that Chinese purchase soybeans will support the market. Then the demand from biofuel development is a strong support for soybean market. Therefore, the soybean oil market is a key indicator we might need to focus in the next few days.8

We believe the US dollar may drop in the short term, but rebound as a result of continued concerns in the euro and new concerns about the British Pound. So overall movement for the USD will be appreciation and the prices of commodities will fall.

Looks like we're still seeing the USD drop, commodity prices have been increasing.
But keep in mind, we've seen this behaviour before in past weeks. slow and cautious increase in commodity prices, followed by sudden sharp drops. The drop is coming, we just don't know when.

Technical Analysis November 7,2011

The technical indicators are difficult to read at the moment as the market is trading with relatively high volumes but relatively small bid price spread; as well as a lack of consistent direction over a prolonged period of time (Tight Market).

Corn

Last week, although the price of corn was fluctuated, the settle price in last Thursday, Friday and today did not change a lot. The fast moving average falls very closed to the slow moving average at this moment. It means the fast moving average may cross the slow moving average from above in the very near future. Also, the MACD indicates the similar moving trend to the SMA since the slow moving average and fast moving average are converging now. These imply that the market of corn might become bearish in the near future. The RSI indicates that the market is neither overbought nor oversold at this moment.

Last week, although soybean price fluctuated a lot, the trend was upward. Today, Monday (Nov. 07th), soybean has a significant drop of 20.2, and it settled at 1192.2 when the market closed. The market either overbought or oversold. The 4-day fast moving average is now under two slow moving averages, and the 9-day MA is also under the 18-day MA, which means the market is quite bearish. MACD is in bullish territory, but it didn’t generate a clear signal (fast EMA didn’t cross above or under slow EMA). The short term trend would be DOWN.

Wheat opened today with a price of 636.00 the price has remained relatively idle in past weeks. This being said wheat is in bullish territory as fast moving average is above the slow moving average, but since both slow average and fast moving average are moving up this is pointing to higher prices. RSI is sitting neutral at 49.65. MACD is also predicting bullish movements but a signal has yet to be signaled. (no crossing of fastMA and slowMA). It looks like there is a convergence of 4-day, 9-day and 18-day MA buying signals could be instigated here.

Demand and Global Outlook( November 7th, 2011)

This week there seems like to be quite less information about demands for grain worldwide. However, the UN’s Food and Agriculture Organization has warned that agricultural commodities prices are expected to remain at high levels well into 2012. The organization said prices would continue to be extremely volatile, fluctuating on moves in the equity and energy markets.1

Recently, the nation's largest pork processor Smithfield Foods Inc. (SFD) said their hog production would increase considerably because of very strong export demand2. As a main hog’ feed, plenty of corn will be needed to meet their demands for higher hog production, which would potentially drive the corn price up. Also, China will become the world's top importer of agricultural products such as corn used mainly in animal feed within recent years due to limited arable land and "relatively weak" agricultural technologies, and it will affect the corn price positively.

According to Wednesday's supply-and-demand report from the U.S. Department of Agriculture, the U.S. export demand for soybeans are weak, so it implies that the price of soybeans will be bearish before USDA will issue the new report this Wednesday3.

In Kazakhstan and Russia high wheat harvests has led to a shortage of storage space and increase in export transportation costs such that they exceed wheat prices. This should push down the price of Black Sea wheat and have a bearish effect on US wheat prices.4

Overall, large crop prospects in South America could weigh on demand for U.S. supplies, which means the grain futures except corn futures will be bearish during the following few weeks.5 Also, the market was pressured by strength in the dollar, uncertainty about the global economy and European debt will both make the futures market negatively.6

Production and Crop Reports (November 8, 2011)

CORN harvest in the US is the smallest in three years and the government's forecast for production is "27.4 million tons less than four months ago." (1) With 7 billion people in our world, it is more important than ever for agricultural supplies to increase at a rate equal to growth in order to meet everyone's needs. Based on this, we predict corn prices to rise.

For SOYBEANS, we expect a slightly lower estimate for USDA's November crop report, due to the mid-September freeze that damaged crop yields. (2) On the other hand, Brazil has a record soybean crop, up from their early October forecast, and slow export demand which puts downward pressure on prices. (3) Argentina also has record crops. There is also a perceived slow (& reduced) export demand for US soybeans. (4) From this analysis, we predict soybean prices to fall.

For WHEAT, there is strong harvest and exports from Australia, coupled with record stocks left over from last season's harvest. This will "boost exportable supplies this season." (5) US supply is reduced by 30 million bushels this month. Exports are projected down 50 m bushels due to high competition from Black Sea Region, Australia and Europe (prices from AUS and Black Sea is cheaper than US prices). Based on these, we predict wheat prices to fall.

Weather Forecast - Nov 7, 2011

Heavy rain is expected in the central/western Midwest and Plains states from Nov 7 to Nov 9, Wednesday. This is good for a hard-red winter wheat crop by providing moisture. And the rain will make harvesting harder in the western Corn Belt, but this does not cause significant concern because harvesting is almost done.
And weather forecasts expect little rain in Ohio, where there is a lot of corn and soybean harvesting to be done. No extreme weather forecased in the US, so the weather would be a factor that could cause commodity price to move downward.

Technical Analysis November 1,2011

Corn
Last week, the corn prices were fluctuated. The price decreases at a increasing rate from Tuesday to Wednesday, and then increases at a decreasing rate from Thursday to Friday. If we followed the price trend continues from last week, since the price increases at a decreasing rate, it was reasonable to explain that the price will drop on Monday since it implies that the price reaches the highest point on last Friday. According to Simple Moving Average, the fast moving average is decreasing, and the slow moving average is increasing, and the fast moving average appears that it is going to cross the slowing moving average from above in the next few days. It implies that the corn market might go to bearish mode in the near future. The fast moving average of MACD is still above the slow moving average, and it seems not to cross the slow moving average in a next few days. Also, the RSI is 49.15 between 20 and 80, which indicates that market is neither overbought nor oversold at this moment.

Wheat

Last week, wheat price has increased up to 652.6 on Friday, and has reached the bottom line at 616.4. This Monday, wheat price dropped significantly again, with change of -16.2.The RSI is 45.56, either overbought or oversold. The fast moving average and slow moving average are quite close to each other since last time the slow moving average has crossed the fast moving averaging and was above the fast moving average. MACD may give a clearer idea what is happening with wheat price. We can see the divergence is positive, which indicates a bullish signal.

Soybean
The soybeans’ price saw a S-curve last week; kept going down at the first three days then rally and peak on Thursday and finally dropped back to the beginning level. Today, as the same cases as the other two commodities, soybeans price dropped significantly. The fast moving average is below the slow moving average which is a bearish signal. And the RSI is 40.94 which is quite neutralize. From the view of MACD, MACD now is in its bullish territory. But do not forget, the MACD only provides a strong signal when the two lines cross.

P - Production and Crop Reports (October31, 2011)

A soggy fall is slowing down this year's harvest of corn and soybeans, after a rainy spring delayed planting for many local farmers.

Statewide, about 64 percent of the state's soybean crop was harvested as of Oct. 23, down slightly from the five-year average of 66 percent. Soybean production is expected to be down in both states but not as low as initially expected.

Corn and Wheat

USDA weekly crop progress report states that more than ¾ of the nation’s corn has been harvested as of Oct. 30 and only a little bit more than 10% of the yield is left in the field. Percentage of harvested yield increased to 78% from 68% of last week.

Improved corn yields in Ukraine and in the EU are increasing world supply. These two regions are competing against US corn for exports, hence we expect prices to go down

Because corn and wheat are production substitutes, and wheat prices have been less than corn, farmers in the US. are planting less acreage for wheat. Also, Egypt (world's largest importer of wheat) bought Ukraine wheat for the first time since 2008. Each article provides an opposite direction for prices.

Demand and Global Outlook (Oct. 31, 2011)

As we examine demand and supply factors for commodities it is also important to consider the larger picture. In many of our classes we discuss the growing population and consequently an increase demand for food and price spikes along the way. Oct 31st has been declared “Seven Billion Day”1 by the UN, as the seventh billion person was born today somewhere in the world-crazy right? Thought this tidbit of info would just be add another fact into your pocket…now lets look at issues in demand for this week….

Corn: Reports from a US Grains Council representative stated that South East Asia will be seeking corn imports to go towards animal feed. With increasing preferences towards meat, in order to keep up with production it is estimated that Indonesia import 2.5-3million of corn this year. Speculators in South East Asian are now paying closer attention to CBOT.2

Wheat: As noted in our earlier blogs, Egypt is one of the largest importers of wheat. It was announced today that Egypt would be importing from Ukraine for the first time in three years, while no mention of US imports were mentioned. However, Bloomberg News week discussed how Ukraine and EU are boosting their crop exports and are in high competition with the US. Export demand from the USA could be in a slump with EU and Ukraine with strong production projects and exporting steadily.3

Weather report(Oct 31st)

According to US National Weather Service, colder- than- normal weather across most parts of the U.S. Midwest in the next six to ten days is expected. Cold temperatures in corn growing areas can reduce the quality of the harvest. And showers are expected to be back into the west-central Midwest and north-central Plains by mid week. The rains will slow corn and soybean harvesting a bit.
This week we will pay more attention to weather in Brazil, the second largest exporter after the U.S. A good rain impacted central and southern parts of the Brazilian growing area over the weekend and little or no rain in that area over the next seven to eight days will help planting corn and soybean in that area of Brazil. Rains will likely move back into Brazil in next ten days and then keep conditions very good for early growth.

Conclusion: The price for commodity in U.S will increase, whereas the price will decrease in Brazil from the weather point of view..

This upward pressure on the US dollar will push prices of commodities down for as long as Japan continues to intervene. Furthermore, European Debt concerns have been renewed, which further pushes demand for the US dollar as a safe haven currency.

To recap on the economics, an increase in the value of the US dollar, means that US goods are more expensive for the rest of the world to buy, so producers must decrease prices to adjust for this effect on the dollar.

Technical Analysis Oct 24, 2011

Wheat
Last week, the wheat price is relative stable with a small extent rise. The market seems have already ended its decrease cycle. The bottom of the price which is about 600 has already been established and has been tested twice. Because the fast moving average is above the slow moving average, the market is bullish. The RSI is 48.89, which is pretty neutralize and does not make any sense.

Soybeans
Soybean last week saw no significant trend upwards or downwards for the entire week. The fast moving average is below the slow moving average thus we are in bearish territory. This could trend down because the price is below the moving average. Volume has in increased in the past week therefore increasing volatility. RSI 43.53 this week is neutral not oversold nor overbought. The market low 1153.00 occurred earlier in October and since Soybeans have been trading in the 1225-1250 range.

Corn
Last week, the price of corn fluctuated day to day according to the closing prices. However, according to simple moving average and MACD, the fast moving averages across slow moving average from below from Oct 11 and never across the slow moving average again. It means the the fast moving average keeps stay in the above of the slow moving average, so the market for corn is bullish. The RSI is 51.01, which is the middle of the RSI, that means the market is neither oversold or overbought at this moment.

P - Production and Crop Reports (October 24, 2011)

In the U.S, soybean supply will be down to about 3.1b from 3.3b of last year because approximately 3m acres were converted from soybean to corn production. USDA stated that grain stocks will continue to be tight throughout 2012. However, in the South Americas, it seems that seeding conditions are pretty optimistic, so it is estimated to bring in good yield.

Wheat

Harvesting of wheat is completed in Kazakhstan. The amount is much higher than expected that the government is scheduling exports for two years as they are expecting to export 22-24m tonnes of wheat. Russia also gained 90m tonnes of wheat and is willing to export up to 35% of its supply. High amount of exports expected to come from Black Sea Region which will decrease demand of US wheat, thus US wheat supply is expected to be quite high. Due to these factors, we predict prices to fall.

Corn

Farmers in South Dakota are experiencing a good harvest as harvest might be done in October. Farmers “look to have the second-largest corn crop on record and the highest average yield”. The USDA crop report that was released this afternoon stated that 65% of corn harvest in the US is complete and that 54% of it is in good condition, and yield increased 1% from last week. China is also looking at an increase in corn yield. Depending solely on these factors, we predict that prices will fall, but this also highly depends on demand factors.

Demand and Global Outlook

The Commodity Futures Trading Commission (CFTC) approved limits on speculation in food, energy and metals, restricting the futures positions a single trader can hold to 25% of deliverable supply for commodities about to be delivered. For contracts further in the future, which are usually held by investment funds, 10% of open interest for the first 25,000 contracts and 2.5% over this level will be the limit. A similar mandate is being debated in the European Union. These regulations stem from fears that speculation contributed to food price spikes and some of the largest funds will have to liquidate their holdings [1]. Traders will have to demonstrate to the CFTC that they have the space to store the commodities they are hedging [2]. These regulations came into play as $9.9 billion was withdrawn from commodities last month sparked by macroeconomic fears [3]; e.g. China’s GDP growth during third quarter is lowest since 2009 [4] which could curb its demand for commodities.

Impact on our trading game:

Corn and wheat already have speculative caps on it. But in previous demand group posts we mentioned that if gold suffered a sharp price drop, commodity funds might have to liquidate their positions in agricultural commodities to pay their margin calls. This regulation should dampen this effect.

The regulations aim to reduce the effects of “herd behaviour” which can be amplified by large funds that spur self-fulfilling prophecy patterns; and therefore reduce price volatility.

Watch for sharp drops in soybean prices leading up to November’s delivery date as large funds that currently have open contract exceeding the new limits will have to liquidate their holdings. Also track open interest and the Commitment of Traders and bid accordingly.

Weekly news: not much big news but keep a close eye on outside markets like the EU.

Corn: Market prices suggest that Chinese demand for corn is far higher than the 182m tonnes cited by official US data, suggesting a large untapped import demand. If prices fall to or below support levels we might expect some large purchases.

Weather Update (Oct 24)

According to USDA report today, soybean harvest moved another big step toward completion, while farmers got almost 20% of the nation's corn crop out of the field in one week. Monday's crop report shows 65% of the nation's corn crop and 80% of the nation's soybeans have been harvested. That puts corn harvest 14% ahead of the normal pace.Harvest figures show additional rapid progress in fall harvest in the western Midwest, with much slower progress in the eastern half of the Midwest due to last week’s significant rain. The weather over all looks pretty good. So basically the prices are forecasted to decrease.